Unemployment Effects of the German Minimum Wage in an Equilibrium Job Search Model

Abstract

We structurally estimate an equilibrium search model using German administrative data and use the model for counterfactual analyses of a uniform minimum wage. The model with worker and firm heterogeneity does not restrict the sign of employment effects a priori; it allows for different job offer arrival rates for the employed and the unemployed and lets firms optimally choose their recruiting intensity. We find that unemployment is a non-monotonic function of the minimum wage level. Effects differ strongly by labour market segment. The differences are mostly driven by firm productivity levels, but differences in search frictions matter as well.